Thursday, June 11, 2009

Memo to Lamido Sanusi

Dear SLS,
Congratulations on your appointment as Governor of the Central Bank of Nigeria. As an economist, the headship of your nation’s Central Bank is the zenith of your profession as it is every banker’s ultimate dream. But you’re not unused to lofty positions and you should I’m sure be able to keep your feet on the ground. You will need to. Putting aside the poor politics around your appointment, I believe you are a good person for the job. You have a background in economics; you understand the Nigerian (and Global) financial services industry (importantly your bias towards risk management is very relevant in these climes!); you have an interest and focus on economic growth and substantive development especially poverty alleviation; and you are a person of courage and integrity. Plus you have a social conscience. I think these are the most important qualifications for the job.
As for the politics, I do not blame you for that. I am sure you understand that in an ethnically diverse nation as ours and given our history, concerns will be raised about the apparent trend towards northern control of all important economic and indeed cabinet positions. Please mention whenever you have the opportunity to your bosses that Nigeria cannot afford a relapse into ethnic and sectional tensions. Please encourage the President and your friends and kinsmen to relax. Nigeria will be there forever (we believe) and we all need to be more sensitive to our ethnic diversity. That in any event is what our constitution and the rule of law demands. Nevertheless I would prefer that appointments to important technical regulatory positions should be offered on merit so while the complaints are valid with regard to political offices, we may be flexible when it comes to purely technocratic positions.
You will face three immediate short-term challenges as you settle into the Central Bank. First is the task of articulating and consolidating a sound policy framework for foreign currency and reserves management. We have had recent turbulence in this area after several years of calm due partly to the global financial crisis, but also due to gaps in policy and governance and lack of clarity about our macroeconomic direction. You are fortunate that oil prices appear to be rebounding but you can’t afford to be complacent. Carefully calibrate your actions towards returning to a market-regime for exchange rates without compromising the need for decent reserve levels. Secondly (and linked with the first point) you will have to help restore confidence in Nigeria’s macroeconomic direction which have been eroded by recent instability and policy zig-zags emanating from government and the bank. Do not send mixed signals regarding our pursuit of a private-sector led development strategy although with strong regulation and competition. Thirdly, you will have to resolve concerns around financial sector soundness and health including asset quality, provisioning, risk management, transparency and professional ethics. I recommend you push the industry towards prompt resolution of these issues especially now that the macroeconomic outlook appears to be softening somewhat.
But the substantive challenges you face are even more significant-reducing interest rates and enhancing access to credit for SMEs and retail customers; bringing inflation down to single-digits in the first instance, and below 5% in the medium to long term; achieving sustainable economic growth and development, poverty reduction and diversification of Nigerian export and revenue base; resolving the structure of financial sector regulation and creating integrated regulation across Nigerian Financial Services; and achieving the objectives of the Financial Sector Strategy (FSS) 2020 especially the establishment of the African Central Bank in Abuja and creating an International Financial Centre in Lagos.
These are important challenges and they are critical to our achievement of the Vision 2020 dream. We cannot grow a productive economy on 25-30 per cent effective interest rates for industry and limited or no access to credit for small and medium enterprises and retail customers. To achieve lower interest rates, we need lower inflation. I think we need to go beyond the low target of single-digit inflation to less than 5 per cent inflation. I recognise the trade-off with economic growth, but then you will have to be flexible between means and goals. We need to deal with our social issues-education, health, poverty, public transportation, rural development and social security. I am happy you alluded to these human development indices in your Senate confirmation hearings. Please do whatever you can to use economic policy to drive the improvement of the standard of living of our people.
How will financial services be regulated in Nigeria? Will we continue the present fragmented regulatory system? How will we achieve “consolidated supervision” as you put it? Will we create new institutions or try a middle-of-the-road approach? You will have to answer this question. My personal preference is for a UK-style Financial Services Authority, but I recognise these times call for careful reflection. There are no easy and tried answers as the western financial crisis reminds us. Finally you will have to move Nigeria towards achievement of the aims of FSS 2020. Will Lagos be an international financial centre during your tenure? Will a fully-functional African Central Bank operate out of Abuja? Will West African achieve monetary union? You will have to see to the realisation of these dreams.
As you battle these challenges, I wish you well and pray you have the wisdom and strength to succeed.

Monday, June 8, 2009

Deepening our Democracy

Nigeria has enjoyed its longest unbroken span of democracy since independence. Given our history, it is a good milestone. But given the degenerating quality of our “democracy” since 1999, it is not yet “Uhuru”. In January 1966, our first attempt at democratic practice collapsed in the wake of the Nzeogwu coup and the military stepped into governance until Obasanjo led them back to the barracks in 1979. Just over four years later they were back on the last day of 1983, with then Brigadier General Sani Abacha announcing that the soldiers were back and General Buhari taking office again as military Head of State. Buhari was succeeded by Babangida and briefly Shonekan before Abacha took power in November 1993.

Abacha thoroughly terrorised Nigerians and helped to remove any remaining tolerance for military rule that was left in Nigerians. I recall writing an article which was published in “The Guardian” in the last days of Abacha which implicitly echoed the frustration I, along with virtually all Nigerians felt at the economic drift, political crisis and international isolation into which the Abacha regime had plunged Nigeria. I was surprised at the number of people who called to warn me, “If Abacha or Al-Mustapha catches you!” It was a big relief when on June 8 1998 Abacha died and Nigeria got a chance to get back on a sensible path.

I indeed believe that democracy is inherently better than military rule. No matter how defective democracy is, if it is sustained over time, the chances are that democratic institutions are strengthened and eventually a better polity emerges. India is an example of this hypothesis. Indian democracy is very flawed. It has many of the elements of our own imperfect democracy-violence, corruption, criminal infiltration into political leadership, party barons who hijack the system etc. Yet unlike Pakistan (and Nigeria) which has alternated between democratic rule and military interventions, India has sustained its democracy and in the process has strengthened itself to the point where today India is one of the world’s fastest growing economies. The comparison with Pakistan which is virtually a failed state, and Nigeria which is a failing state can not be more stark!

However the fact that we are better off sustaining democratic rule rather than relapsing into military rule, fascism, totalitarianism, feudalism or any other unrepresentative form of government must not obscure the fact that in ten years of so-called democracy, we have actually become less and less democratic. As many commentators have correctly put it, while we undoubtedly have civilian rule, it is not clear that what we presently have can be properly called a democracy! Democracy implies supremacy of the will of the people. It rests on free and fair elections at regular intervals. In a democracy, the elected are accountable to the electors and government exists for the welfare of the people. In Nigeria, all of these notions are becoming more and more remote from our practice of democracy.

It seems like we have the physical structures (the body) or the letters of democracy-a parliament, regular elections, civilian government officials, a constitution etc, but we have lost its spirit. The spirit of democracy is typified by respect for the rule of law and the constitution, faith in the ballot box and integrity of the electoral system, sovereignty of the people and government exists to advance the good of the people. Today the behaviour of our political class more closely resembles that of unelected colonial officers who have been selected by an imperial authority to rule over a conquered people. Our elections are of little or no consequence. The winners are predetermined through means that have no bearing with the will of the people, and elected politicians appear merely to tolerate the unwanted intrusions of their constituents rather than holding themselves accountable to them. The people have lost their sovereignty to a buccaneer political class.

Our only saving grace has been the judiciary which retains some elements of independence; the media which has not been completely suppressed or compromised; and parts of civil society which has not given up on the ideals of a true democracy. So the political class now has untrammelled power over the people who can only look on while the “dividends of democracy” are by and large monopolised by a few. The political class will not willingly abdicate this power and the privileges that they have now gotten used to. So the people of Nigeria will have to reclaim their sovereignty from those who have hijacked it. They will have to return to citizen activism. They will have to join political parties or civil society organisations. They must write “letters to the editor”, op-ed pieces or newspaper columns and insist that their voices must be heard.

They will have to organise protest marches and peaceful demonstrations. They must write letters to their legislators and follow up with more vigorous actions if no response is received. Nigerians will have to insist that elected and appointed office holders account to them for their performance in office. They must insist on recovering their lost sovereignty.

War in the Niger-Delta

Last year I wrote “The Trouble In The Niger-Delta” in which I argued basically that a “three-track strategy” consisting of a “sincere and constructive discussion and engagement between all stakeholders (federal, state and local governments, community and civic associations, oil companies, NDDC, youth groups, media, donor agencies, etc) to achieve consensus on the region’s development”; a “massive and immediate infrastructural investment in the region-roads and bridges, railways, hospitals, urban renewal and new cities development, primary and secondary education, micro-finance institutions, as well as skills acquisition and youth and vocational centres” and “the third track-military and intelligence capacity building and strict and decisive law enforcement and security action” would be required to solve the problems in the region.

Essentially there are legitimate grievances in the Niger-Delta which had been identified as far back as the Willinks Commission Report of 1957. These have manifested in different forms-the insurrection of Isaac Adaka Boro during the first republic, the agitation for the creation of the COR (Calabar, Ogoja, Rivers) state; the Ogoni Campaign led by Ken Saro Wiwa and the Movement for the Survival of the Ogoni People; the large presence of Niger-Delta indigenes in the Orkar Coup in 1990; grumblings over environmental degradation and development which led to creation of OMPADEC and NDDC; the resource control argument etc. Unfortunately since the advent of the current republic, these legitimate grievances have become subsumed within a movement that manifests more as criminality, political violence, oil theft, kidnapping for ransom and general lawlessness, and has detracted from the genuine complaints of the Niger-Delta people.

This derailment was traceable to the visionless political leaders in the region beginning from the run up to the 1999 elections and afterwards who deployed the strong arm tactics of the militant groups to secure their “election” into office and who afterwards paid them hefty sums of money to maintain their loyalty. Alternatively these leaders looked the other way while their erstwhile henchmen took over territory, engaged in kidnapping or oil “bunkering” or other forms of criminal extortion and brigandage, thus discrediting the campaign for development in the region. The large scale corruption within the political class meant that the governors and legislators had no moral authority to restrain this descent to criminality. It also meant that the region’s call for “resource control” and a higher derivation rang hollow in the ears of other Nigerians.

To be fair, the lack of visionary leadership since 1999, and corruption and loss of moral authority was not restricted to the Niger-Delta-it was a pan-Nigerian problem. Northern leaders for instance could equally be asked why in spite of their near-total control of state power since independence; the region has the highest poverty and illiteracy rate in Nigeria. In the East, men had largely abandoned education for trading and in Yoruba land the office where Awolowo once sat is now occupied by Alao-Akala! In short the leadership failure in the Niger-Delta is replicated across the Nigerian State so none of us is justified in casting the first stone. But the consequences were going to be worse in the Niger-Delta which alone had the right to feel that Nigeria was maintained by resources extracted from their region while they lived with the environmental and social consequences.

In the earlier article referred to above, my point was that only simultaneous attention to the fundamental causes-underdevelopment, dialogue around our federalism-as well as dealing with crime and law enforcement could provide a sustainable long term solution to the problem in the region. In effect with the current military operations, the Nigerian state has chosen a military solution by and large. The government’s initial actions of creation of a Niger-Delta Ministry, the Niger-Delta Technical Committee and the offer of amnesty all suggested an intent to proceed with such a multiple approach but the government has evidently shown more commitment to the pacification of the region, rather than the other approaches.

The leadership of the Niger-Delta, particularly the Ijaw ethnic group, must now recognise that they have committed significant strategic errors. It could not have been in their interest to precipitate a military confrontation with the Nigerian state; they allowed the actions of the “militants” to alienate many domestic and international observers; and like Sadaam Hussein continued to threaten a “mother of all wars” which has now provided an alibi for military action. The type of intellectual and political militancy required was almost completely absent in effect ceding the leadership of the Niger-Delta “struggle” to miscreants and gangsters whose motives were largely commercial. It is time for them to re-evaluate their strategy.

The Nigerian state will also need to evaluate its own strategy. Military action will end the criminality (at least for a season) but if the political undercurrents and development of the region are not attended to, the next blow-up may even be worse as we have seen from history. Beyond the Niger-Delta, there are issues from other regions-Sharia, fiscal federalism, MASSOB, federal character-all of which suggest that a honest debate about the structure of our federalism is still necessary.

Rural Embezzlement Agency

What exactly should we call this agency supposedly responsible for connecting electricity to Nigeria’s rural areas, but which it turns out was just an official front for stealing public money, whose “real economic agenda” was to provide permanent poverty alleviation for bureaucrats, contractors and sundry senior legislators?

Apparently the Managing Director of the so-called Rural Electrification Agency, one Mr Sam Gekpe, the Permanent Secretary of the Federal Power Ministry, Dr Abdulahi Aliyu, the chairman of the Senate Committee on Power, Senator Nicholas Ugbane, three “powerful” members of the House of Representatives-“Honourable” Ndudi Elumelu, chairman of the House Power committee (does anyone remember the show of righteous indignation that this gentleman put up over the $16billion purportedly spent on power by the Obasanjo regime), his deputy “Honourable” Muhammed Jibo, and the chairman of the House Committee on Rural (under)Development, “Honourable” (did anyone suggest to these “Honourables” that what they were doing amounted to dishonourable conduct?) Paulinus Igwe, as well as some other officials-Simon Nanle, Kayode Orekoya, Abdulsamad Garba Jahun and Mr Kayode Oyedeji (and one contractor, Emeka Ohaghena) simply got together sometime in December 2008 and shared N6.2billion in respect of what the newspapers called “phoney contracts”.

Now this people had the responsibility one way or the other for bringing development to Nigeria’s rural dwellers. As my wife asked as she read the report, “Where were the rural dwellers in all of this?” Do we now know what happens to all the millions, billions and trillions that we continually appropriate every year? Now remember that this is not a freak occurrence. Last time, it was the Health ministry-Minister, Minister of State, Permanent Secretary, Directors, and the Senate and House Health Committee chairpersons (the legislators were merely performing their constitutional ‘oversight’ over all activities of the executive, including looting the government purse!) who got together and shared N300million as Christmas gifts.

Earlier similar sharing of budget appropriations consumed the former speaker of the House of Representatives, Mrs Patricia Etteh, former Senate President, Adolphus Wabara, Senate and House Committee chairs of Education and a Vice Chancellor. Earlier in the Obasanjo tenure, it was a Minister of Internal Affairs, His Permanent Secretary and other officials who simply shared national ID card project monies. Already there is talk about another impending prosecution of virtually the entire leadership of the Universal Basic Education Commission over another N850million contract scam. Does anyone understand why it has been impossible for the public sector to deliver power and other services to Nigerians? Do we now know why NITEL, Nigeria Airways, National Fertiliser Company, Aluminium Smelter Company, Nigerian National Supply Company, Ajaokuta Steel, Nigerian National Shipping Line, NEPA, etc all failed woefully to deliver on their mandates while their former heads are now millionaires and billionaires? Does anyone understand why Nigeria will never develop if we remain ambivalent towards corruption?

Now notice that the list of accused persons fully reflects Nigeria’s federal character! All our geopolitical zones are well represented. The accused persons, if the allegations are correct, did not quarrel over zoning, rotation or party affiliation. No one complained of marginalisation. They did not fight on behalf of their states of origins, ethnic groups, tribes or communities. Though their tribes and tongues differ, in brotherhood they stole! And shared! There was no discussion of their religious differences also. Their names suggest they were self-proclaimed Christians and Moslems-Nicholas, Samuel, Muhammed, Abdulahi Aliyu, Paulinus, Simon, Garba, and Lawrence. They did not remember Sharia as they shared the money. No one reminded the others of the Biblical commandment-“Thou shall not steal”.

I am certain that if you check, all our major Christian denominations were fully represented-Catholic, Anglican, Pentecostal, African Church, etc. There was no quarrel over any Islamic sectarian differences either. Some may even have been worshippers of traditional religions. None of that upset the bond of solidarity which filthy lucre fostered between the conspirators-in-theft! The “Christians” will have paid their tithes and the “Moslems” done the required zakat! The traditional religionists will have done “etutu”. That done in their estimation, God would have been successfully settled and their road to heaven cleared of all obstacles. The fate of rural dwellers who might have died due to lack of medical care as a result of absence of electricity, or the numerous children who could have been denied education, or the village artisans who may have escaped poverty if only they had power to work with, or the many other destinies destroyed and hopes shattered was too remote for them to factor into the calculation.

Is President Yar’adua finally launching a true war on corruption? Will the trials proceed to a logical conclusion or will the cases terminate after the accused persons are granted bail? When the accused persons’ Emirs, Obas and Obis as well as their community leaders and powerful friends begin to launch appeals for a “soft landing”, will the system insist that justice must be done? Is this a one-off attack or a sustained assault on the cancer that is destroying Nigeria’s journey to becoming one of the top twenty economies in the world? Will the battle proceed irrespective of who the next culprit is? We can only wait and see.

Yar'adua's Mid-Term Review Part 2

There are some parts of the President’s report card that are mildly encouraging-he realises that the economy has to grow by double digits over a decade and beyond for Vision 2020 to be realisable; he says government has settled on an economic model-free enterprise with adequate regulation and identified the enablers that will facilitate economic growth, consistent with the seven-point agenda; the government is devoting budget resources to critical infrastructure as well as involving the private sector in transport concessioning-this columnist’s key concern about the absence of transparency in the Lagos-Ibadan expressway concession will not be repeated in future based on the provisions of the Procurement legislation, the President promises.

The President even recognises that attracting private capital into infrastructure will release resources for education, health and other social spending; the basic intent of the petroleum sector reforms is sensible-to make the NNPC a competitive national oil company, and to restructure the oil joint ventures into incorporated joint venture companies and so remove their dependence on the treasury for funding operations; generally a strategy seems to be in place for many aspects of transportation-roads, rail, aviation, inland waterways etc. The problem is that in almost every case, all you have are statements of intent, mid-way into a four year tenor! The test really is whether the regime will display enough political will and administrative acumen to see through its plans and commitments.

In several areas, the portents are not encouraging. I have already spoken about power, where it now seems clear that absence of political will (based perhaps on narrow geo-political reservations rather than economic considerations) have prevented the government from proceeding on a private sector led power strategy that is both compelling in its rationale and is also the law of the land as encompassed in the Electric Power Sector Reform Act 2005. In the Niger-Delta, you also see a similar absence of political will to make the required investments in the region to communicate to the people seriousness to address the region’s infrastructural needs- the pitiable allocation to the new Niger-Delta ministry compared with stupendous allocations to Abuja belie any commitment to developing the region.

The regime’s words are hardly aligned with its deeds regarding electoral reform as well! In spite of President Yar’adua’s stated commitment to electoral reforms, none of the elections held since he became President has been better than those conducted in 2007-in Adamawa, Kogi, Cross River and most recently the shame and violence visited on the people of Ekiti. These divergences between promises and actions further detract from the legitimacy and credibility of government.

The regime has developed a commendable legislative agenda. The proposed land reforms are a critical step in liberating the housing and mortgage sectors and making it easier for Nigerians to acquire and transfer title to land. The basic premises of the Petroleum Industry re-organisation bill make sense as well, even though the government has not engaged adequately with industry stakeholders and does not appear to have factored their inputs into the draft legislation. At the end of the day, if industry investors are unhappy with any law that emerges, the whole exercise would have been in vain. The government has also sent seven electoral reform bills to the National Assembly. But then there has been little or no legislative advocacy to push these legislations through Parliament.

If the government does not aggressively push its legislative proposals, of course opponents will stall them until the end of this legislative cycle-which is sooner than one may imagine as the campaign season and constituency activities increasingly engage the time of the legislators. The proposed downstream petroleum sector deregulation does not require legislation, but even that is stuck in the wheels of executive inertia, leaving Nigerians to contend with a return to debilitating fuel queues and petrol black markets. And while the President touts a commitment to free enterprise, his actions on the privatisation front do not match its claims. As one columnist puts it, the regime has appointed a self-acclaimed “novice” to oversee the privatisation process and from the gentleman’s early actions and pronouncements, it appears his mandate is to confuse rather than progress things.

The President appears to be drifting into an inclination to micro-manage and getting bogged down in operational details; there is no evidence of radical thinking and a comprehensive strategy in agriculture, (which is critical for food security, a key part of the seven-point agenda and job creation)-the recently launched big farmers’ scheme is like building the house from the roof! The priority should be providing land for millions of unemployed youths in smallholder farming schemes; and the worst part of the interview was when the President discussed Nasir El-Rufai, Nuhu Ribadu and his ex-governor friends. The “surrender” on the MDGs is also regrettable. On the whole, the chef appears now to have finalised some recipe, but he is still in the kitchen, dinner is yet to be served and the household is hungry! Unfortunately the taste of the pudding can only be in the eating!!!

Yar'adua's Mid-Term Review

The Yar’adua Presidency will be half way through its term by the end of this month. Indeed as Barack Obama celebrated his first 100 days the previous week, our own government has also being in office for roughly 100 weeks this week. How has the regime fared? As I pondered over this question preparatory to writing the inevitable Yar’adua mid-term review, the President did me, and other Nigerians a service-his extensive interview with the Guardian provided a comprehensive “examination script” on the basis of which Nigerians can assess the last two years and provide a report card. I propose to do exactly that over the next two weeks.

First of all the idea of the interview was itself a welcome change given what had come to resemble the regime’s preference for shielding its activities from the media and conducting government without “playing to the gallery”. I commend the President’s initiative and hope that the interview should signpost a shift in communication strategy, with the President, Ministers and other senior government officials willing and indeed eager to engage Nigerians on their policies, plans and challenges. That in itself is a critical ingredient of democracy-openness and accountability. Policy communication also has an economic role, especially in a period of turmoil and uncertainty, of calming investors and increasing confidence. The second thing that came across from the interview is the President’s increasing mastery of details which seems to me to indicate a significant improvement in the quality of governance in the President’s second year.

A similar interview marking the first twelve months was comparably less engaging and left the interviewee resorting to the refrain of “rule of law” which soon appeared like an alibi in the absence of substantive progress. A final preliminary observation, also positive, is that the accusation that the Yar’adua regime is lacking in strategy and policy may no longer be a correct assessment. The President throughout the interview appeared finally to have articulated a comprehensive strategy and policy direction which we can now analyse and agree or disagree with. That is a significant step forward and reflects partially the fact that the President has assembled an improved cabinet and has access to better quality information, analysis and policy advice. The issue now (in most areas) is whether the President’s strategy is appropriate and even then whether he is proceeding resolutely with implementation.

I can say right away that I disagree with the government’s strategy in respect of power, which is probably (next to corruption) Nigeria’s most important economic challenge. The strategy appears to be an endorsement of the Rilwanu Lukman committee’s basic recommendation of a state-led strategy for power. The strategy flies in the face of the reality that government does not have the resources, managerial capacity and incentive structure to solve the country’s power problems. It ignores the lessons of telecommunications, aviation, broadcasting and banking amongst others, in all of which private capital rapidly increased capacity and service delivery and created jobs and other economic spin-offs. Curiously the preferred approach in power contradicts the regime’s posture in relation to transport infrastructure-roads and rail-where a concessioning strategy is emerging and the petroleum sector reforms driven by the same Rilwanu Lukman which seeks to remove the obligation on government to fund upstream joint venture cash calls.

The power error is a major drawback to the otherwise sensible proposals emerging from petroleum-both downstream and upstream, transportation and other economic sectors. It also diverts resources from the critical investments in education, health, rural development, public transportation, security and law and order and social welfare which only the government can undertake, whereas private capital will readily go into the power sector if the right policies are pursued. Those resources for instance may have eased our ability to meet the millennium development goals. It is becoming likely that the administration will meet its 6,000 MW target by December or soon thereafter. That is good, but will not lead us to becoming one of the top twenty economies in the world. The strategy will not produce a transformation in power which is what we need, but will at best only deliver incremental growth. As Michael Porter famously said, “operational effectiveness is not strategy!”

One area where even from the interview it does appear that Yar’adua is yet to make up his mind on what he wants to do is with respect to corruption. I mentioned above that in my view corruption is in reality our biggest economic problem in that it leaves us only a fraction of value-for-money for every Naira of public investment. It also affects capital inflows and investments and distorts economic planning. Apart from its economic effects, corruption is also our biggest political problem (it attracts the wrong people into politics and is the raison d’être for election rigging) and social issue (it encourages conspicuous consumption and erodes moral values thus leading youths into 419, armed robbery, kidnapping, prostitution and other vices). It is clear that the regime is yet to reach a depth of purpose in relation to corruption.

Rebranding PHCN and other comedies

They say when a matter goes beyond crying, you start laughing. I suspect that matters in our country are approaching the point where our people will have to find the heart to laugh about our issues. Good business for Ali Baba, Gbenga Adeyinka and Co!

Amodu’s (E)Scapegoats!

Have you heard the latest from Shuaibu Amodu, the “coach” we excavated from somewhere and put in charge of our “Super” Eagles as we seek qualification for the 2010 World Cup in South Africa? Amodu has essentially issued a negative “earnings forecast” implying that we may not be able to qualify due to the quality of boys available to him. Reminds you of the student who when his grade is A claims to have earned it, but when it is D says that is what the teacher gave him or the workman who blames his output on the quality of the tools. Didn’t Amodu boast at the end of the last round of qualifiers that he would win all the next round of qualifying matches? When did he re-evaluate the quality of boys? What is the NFA waiting for? Isn’t it time to look for a coach who can do the job? Okay, maybe NFA means “No Future Ambition”?

FG’s “Plans” to Help Nigerians

There have been reports in the media of “plans” by the Federal Government of Nigeria to come up with a “stimulus” package to help Nigerians in response to the global economic meltdown. I like this government. Unlike the governments of US, Britain, Japan, China, Russia and other global economies (including the stupid G20 people who didn’t invite us to their useless meeting), Nigeria’s government plans well before introducing any measures. Noted economists all over the world indeed have confirmed that the global crisis persists because those governments did not plan well before introducing various measures. Nigeria’s plans when they are eventually implemented will show the whole world how to respond to a global meltdown. I am sure the plans will be implemented before the meltdown is over!

Rebranding Corruption

Professor Dora Akunyili will soon put to shame all the enemies of her revolutionary rebranding Nigeria campaign. That is one of the benefits of putting a scientist in charge of the information ministry-she has already carried out a simulation using both empirical data and logical analysis and has discovered a simple solution to Nigeria’s problems. Simply rebrand the country. Good People, Great Nation….and eureka all our problems disappear! While she’s at it, I will like to suggest she also rebrands corruption which is one of the problems the world has with Nigeria. Let’s stop wasting our time fighting corruption. Just rebrand the thing! We can call it “elite stimulus package”, “government employees’ voluntary pension programme” or “privileged citizens’ capital accumulation scheme” and defend it vigorously as Nigeria’s own contribution to social security, poverty alleviation and pension structures. Go Dora Go. Your place as a Nigerian living legend is assured once you implement this bold and innovative strategy.


And Ekiti “Elections”

Dora can also rebrand election rigging and violence. She has a live test case in Ekiti which can be used to propound a new hypothesis. She can start by repeating the claim that elections in Nigeria are a unique enterprise-different from the ones in Ghana or South Africa. I must confess I don’t know how exactly she will prove her case, but I’m certain her cabinet colleague Ojo Maduekwe can assist her.

Problem Has Changed Name (PHCN)

A rebranding of a different sort is ongoing in the power sector. I was one of those who was relieved that an “energy economist” with previous experience working on a private sector strategy for the power sector at the BPE had been appointed power minister. Well the gentleman’s views on how to transform Nigeria’s power situation has apparently undergone a make-over. In an interview with Toyin Akinoso in Africa Oil and Gas Report, the minister, Lanre Babalola has apparently chosen PHCN autonomy as a substitute for privatisation. When asked about the 414 expressions of interest for investors interested in the seven generation and eleven distribution companies, the response went something like, “Even without the desire to sell, you have to run things differently…” His new strategy is like having a minister for communications in 2001 who rather than allow MTN, Glo, Zain and co invest in telecommunications chose to focus on improving efficiency in NITEL! He advises Nigerians not to be “fixated” on privatisation and he declines to answer a question on when the private sector will be allowed into the power sector. The minister has obviously received firm instructions from the Power Holding Cabal of Nigeria!

Our Father Who Art in Heaven

The last time some correspondents asked ex-President Obasanjo about a solution to our power problems, he indicated that we should pray to God about it! The old man was on to something there. But it’s not just about power that our salvation lies with God. It is now clear that we should pray about everything-Nigeria’s qualification for South Africa 2010, economic meltdown, corruption, electoral reform, Niger-Delta, infrastructure, crime and insecurity, unemployment, education, health…everything. General Gowon, over to you…Let Nigeria Pray!

On Broadway?

“Enter ye in at the strait gate: for wide is the gate, and broad is the way, that leadeth to destruction, and many there be which go in thereat: because strait is the gate, and narrow is the way, that leadeth unto life, and few there be that find it.”

This column is in its fourth year. Those who have followed this page over the period may have begun to discern our mission-to influence society, principally Nigeria towards a transformation of its values and way of life-economic, political and social. Even though the “centre of gravity” of the column is economy and business, such transformation must be total-which means not just the body and mind, but also the spirit. That is why we write on economy, politics, society, sports, entertainment and religion. That is why around Easter and Christmas, we often have one or two articles focused on faith and religion. This year, that article may have tarried, but was sure to come!

I was never in any doubt what I was going to write about. For several weeks, the words of our Lord Jesus Christ in Mathew 7: 13-14 above (KJV) had continually rang in my mind, and I soon realised that perhaps I was required to share it with readers this season. Jesus in those verses paints two different scenarios-one, a broad way and wide gate leading to destruction; and the second, a narrow road and small gate that leads to life. The NIV translates those words as, “Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it. But small is the gate and narrow the road that leads to life, and only a few find it.”

There are several implications of these words. First when you see a large crowd of people and an undiscriminating assembly in which everyone is comfortable, it may be popular, fashionable, may appear credible, but as far as Jesus is concerned it is likely to lead to destruction. Clearly God’s standards are different from ours. Men seek safety in numbers; but with God “many are called, but few are chosen”. Like I once heard someone say, one test you can apply to discern God’s will concerning a matter is to check where the world is going and then turn in the opposite direction!

Another implication is that it is not difficult to locate the broad way. It is conspicuous and pervasive; you know several people on that way and the road is well advertised! Anyone you ask will tell you how to get there; and there are many signposts and entry points!!! You can enter the Third Mainland Bridge from Osborne Road in Ikoyi, Obalende, Simpson, CMS, Tafawa Balewa Square, Costain, Adekunle in Yaba, Oworonshoki, Anthony, Ogudu, Ojota and Toll Gate. You can’t miss it! Who in Lagos does not know Broad Street! But you have to FIND the narrow way! Naturally few are interested in such a narrow, inconspicuous way. It is not “the place to be” and is difficult to locate.

The narrow way may be located inside a private estate or could be a dusty, unmarked road in the wrong side of town. That is probably why it is despised and only a few find it. Jesus does not leave the conclusion of the two different journeys to us to imagine or deduce. He is categorical that the broad road and wide gate leads to destruction while the narrow road and small gate leads to life. And he makes it clear that there is a large multitude, the overwhelming majority proceeding happily on that road to hell, and only a few will find the narrow road that leads to life. A word should be enough for the wise!

One can argue that much of the Church today more closely resembles the wide way. The standards are not different from that of the world. The pursuits, interests and priorities as well as the “strategies” and “tactics” are the same and the objective is numbers, precisely as on the wide way rather than the undiluted gospel of Christ which as we know often antagonises. Indeed if you see a large meeting, going by the words of Jesus above, it is more likely a wide bridge that at best leads to no where or at worst an expressway to hell! Anywhere Christ, his disciples, Paul, Stephen or any of the examples of our faith preached, they made society especially the corrupt and wicked severely uncomfortable and that is why the Pharisees and the Council felt they had to kill them.

I believe it is not a coincidence that immediately after the words above, Jesus utters the following words, “Beware of false prophets, which come to you in sheep’s clothing, but inwardly they are ravening wolves. You shall know them by their fruits…” Is Jesus implying that in all probability there will be many false prophets on the wide road leading the people to their destruction? Are you sure you are not been led along the broad way? Let us carefully search for the narrow way, and by his grace, we will find it.

What do we lack? Part 2

“Dear Opeyemi,...As usual I enjoyed reading you yesterday on the back page of Businessday-and I am in full agreement with you, except that I think you ran out of space before you could “complete” your argument. True, leadership is in short supply, but what should the followership do about it? My main distress is that the people in their 30s, 40s, seem to assume that we have to live with leadership delinquency. My view is that Nigeria, like nature should abhor this vacuum and find a way to mobilize the intelligence, energy, commitment and effort of the people at the peak of their life cycle to take responsibility for devising a creative thrust towards shaping the future. Maybe you want to think about this and if you agree, try to bring your “What do we lack?” to a challenging conclusion….Christopher Kolade.

I have published Dr Kolade’s e-mail because I know he would have no objection and secondly I agree entirely with him. Incidentally Dr Kolade was not the only reader who sent responses highlighting the followership dimension. Another “Chris” (Adedipe) made a similar point. Their point is valid-okay so we have a leadership problem, but didn’t the followership in other societies faced with similar circumstances rise up through new and emergent leaders to salvage their nation?

Didn’t Ghana for instance throw up a Jerry Rawlings who swept away Ghana’s wayward and corrupt leaders and set Ghana on the path to reform, growth and democracy? Didn’t Nelson Mandela and his colleagues on the ANC Youth Wing rise up to challenge South Africa’s apartheid leadership even upon pain of imprisonment? Didn’t Deng Xiaoping rise to the leadership of the Chinese Communist Party and then unleash a reform process that has transformed China into a global economic power in just thirty years? Didn’t Lee Kwuan Yew as a 30 year old accept the responsibility of taking Singapore from third world to first in just three decades? Don’t countries regularly demonstrate that the people are not powerless in the face of leadership-Ukraine, Czech, Thailand, Madagascar, in recent memory?

Didn’t American voters and society demonstrate just recently their willingness to challenge and replace the inept leadership provided by Bush, Dick Cheney and the Republican Party? Indeed the Republicans reminded us that leaders anywhere can drift into error if they are not restrained by the people. What are we Nigerians doing to restrain, challenge or replace bad leadership? If our national government is too remote for us to put pressure on and demand better performance from, what about the state and local governments, and national legislators who live amongst us? What about the commissioners and house of assembly members who stay in our communities? Why are Nigerians so willing to bend over backwards perhaps until we break?

We have to re-invent society itself! We need a new activist civic mentality that is willing to challenge abuse of power and demand accountability from elected officials. Even where they have rigged themselves into office, we must insist that they have merely forcefully submitted to our authority. Nigerians must realise that we are the bosses, not those who are supposed to serve us. That is why they are called “public servants”, “civil servants”, “representatives” or “ministers” and not Kings, Queens or Lords! We need a sense of community in which everyone recognises our mutual inter-dependence. Society cannot function when everyone acts in pursuit of his or her own self-interest and self-preservation without regard to the common good. Unfortunately like Fela sang (“I no wan die, papa dey for house, mama dey for house, I wan build house, my pikin still young….”), our people fear death and danger, not realising that the value of life consists of what you do with it, and we end up deferring all the problems of society to the next generation, except that by then, the problem has degenerated many times over!

As I close however I must return to President Yar’adua’s basic enquiry, “what do we lack?” My answers have focused on fundamental causes-leadership, elite consensus, national identity and purpose, a progressive value system and social ethos, resourcefulness and productivity in public life, an activist civic citizenry etc. But all of these do not explain why President Obasanjo used to be invited to G8 meetings and Yar’adua is not invited to an enlarged G20 summit. So we must seek specific reasons for our exclusion from this G20 meeting. I think there are three-the elections that brought Yar’adua to power lacked credibility and legitimacy highlighting the critical need for electoral reform.

Secondly the world believes the current regime has abandoned its commitment to fight corruption with the treatment of Nuhu Ribadu and inaction on the corruption front-the remedy to that is also clear. The final point is that we have basically abandoned economic reforms-why invite a government whose economic policy is unclear to a summit focused on resolving a global financial and economic crisis? Moreover, we have compounded these factors with our voluntary withdrawal from the world stage. Those are the reasons, Mr President. May God give you the will and the power to do what is required.

What do we lack?

“I must say that today is a sad day for me. And I think it should be for all Nigerians, when 20 leaders of the leading countries in the world are meeting and Nigeria is not there. This is something we need to reflect upon. We have the population, we have the potentials, we have the ability and capacity and we have the will. What do we lack? Is it the will that we lack? Honestly and sincerely, to realise these potentials…potentials are nothing unless they are realised. No matter the potential you have, unless you work on it, it will not be realised. No matter the potential you have, unless you work on it, it will not be realised. We must realise it and lead the nation to realise it. This is what we must do and PDP must do to realise its potentials.”-President Umaru Musa Yar’adua addressing the PDP National Executive Committee (NEC) on Thursday April 2, 2009 in Abuja.

President Yar’adua must be commended for raising these weighty and serious issues. It is somewhat comforting to know that this matter agitates our President’s mind as one might otherwise have thought from the actions of the regime that we didn’t care what the world or even domestic audiences thought about us. But all Nigerian patriots must take up these questions and help the President, his party and his colleagues in government at the federal, state and local government levels find the right answers to these important questions. Fortunately or unfortunately we don’t have any other country!

I was tempted to give a short, one-word, ten-letter answer to the President’s enquiry-leadership! Chikena!!!But then I decided to interrogate the questions more carefully and see whether we can reach some deeper diagnosis. I discovered that there are in fact several things we lack which I will outline here. First, an enlightened elite with a consensus on where we want to take Nigeria to, and how. We have a short-sighted, self-seeking, selfish and parochial elite. I can also add self-destructive. Our elite cannot identify their long-term sustainable interests. Everyone seeks personal short-cuts and compromises the system. When an individual is in power, he forgets he will one day leave, and acts only for personal benefit instead of creating a system from which all can gain. It is not unusual for such persons to start complaining bitterly when they leave office.

Our elite do not recognise that poverty and under-development breed crime, insecurity and social crisis from which even the wealthy suffer. Rather than build a hospital, the Nigerian elite steals the money, and then flies their relatives to South Africa, Egypt, England when they are sick. Secondly we lack a committed and selfless political class. I once listened in shock to a gubernatorial aspirant in my state disclose that when a leading ‘godfather’ recruited him into politics, he was clearly informed that this was not about service to anyone but themselves! So we have entrepreneur politicians looking for food to eat! Unfortunately by the time they have more than enough to eat, stealing has become a habit and they can no longer stop!

Thirdly we do not have a national identity and purpose. We think in terms of Northern, Hausa-Fulani, Yoruba, Igbo, Ijaw interests and the like. Our narrow ethnic, sectarian, group and communal agenda are stronger than the national identity so we often see the same issue in different lights based on misguided considerations. As a result the nation is immobilised as we seek a lowest common denominator to which everyone has no objection, rather than a highest common factor to which all agree. Fourthly we do not have a progressive value system and social ethos. Our social values have degenerated as a combined result of oil, unaccountable governments and corruption. Today our values are defined almost exclusively by money and power and society is undermined as each individual acts against the interest of sustainable society.

Fifth our public life is not characterised by resourcefulness and productivity. While individually Nigerians have these characteristics in abundance, our country has developed a prebendal culture of sharing, consumption and distribution rather than production. We gather all finance commissioners to Abuja every month to share oil proceeds rather than (as in the first republic) every region or state contributing resources based on its productivity. There are other things we lack-a professional and courageous civil service (we used to have this, but it was destroyed by the military purges and corruption); our business class is not universally committed to innovation and entrepreneurial value creation (instead with some exceptions, we have a rent-seeking, contractor, crony capitalist class); our military started by giving us officer-gentlemen like Gowon, Mobolaji Johnson and Hassan Katsina, but ended up with Abachas and El-Mustaphas; and there are many other things we used to have that we have destroyed-a principled world-class academia, vibrant student’s unions and labour movements, media, religious institutions, and the professions, many deliberately destroyed by soldiers or politicians or subverted by corruption. And then I realised that I had come full circle. It all boils down to leadership! All of these things are about leadership! Mr President, what we need is leadership!

Policy and Economic Review Part 2

Last week we focused on budgets, stimulus, deficits, spending reform, innovative approaches to stimulating the economy, and priority sectors-power, transport and solid minerals (add agriculture), and such matters. This week there are more issues-foreign currency management, a return to controlled interest rates and broader issues of economic management strategy that appear more and more mis-directed under this administration.

First the shocker that emerged from the Central Bank mandating banks to take deposits at a maximum of 15 per cent, grant loans at a maximum of 22 per cent interest and 2 per cent per annum fees, with an explicit maximum spread of 6 per cent. With this policy pronouncement, the Central Bank completed an embarrassing descent into economic illiteracy that has been unfolding in the last few months! I was willing to support the banks “temporary” controls on the foreign currency management side. I believed that those were justifiable in the context of an emergency situation of an unprecedented global financial crisis, and economic meltdown. I agree that the lesson from Malaysia’s response to the Asian financial crisis was that in the midst of a crisis, temporary controls may be useful in stemming outward flows and calming the markets.

In spite of agreeing with this broad response on the currency management front, there are actions from the bank itself which appear to have fed the panic in the first place-the absence of policy direction in December/January while market participants worried about foreign currency sourcing in the new year; doubts about the safety and soundness of the banking sector which I believe have been fed rather than assuaged by the regulator’s complicity in the industry’s decision to defer recognition of loan losses, and lack of transparency regarding the extent of individual institutions’ and the industry’s exposure to margin loan losses; the over-celebratory posture of the regulator since the conclusion of consolidation and pushing the industry in the direction of further capital raising rather than the substantive priorities of the industry. The mere fact that there are rumours in fact questioning the integrity of the CBN’s management of foreign currency depreciation whether true or false is itself a comment on the incestuous relationship that appeared to have developed between the regulator and those it was supposed to be regulating.

While the arguments on foreign currency management may be nuanced and debatable, I find nothing whatsoever that can justify the resort to direct price controls as the Central Bank’s strategy for managing interest rates. For one, they will not work. Price controls which run against economic fundamentals (as Nigeria should very well know from our history in the 1970s and 1980s) don’t work. In financial services, they are even more useless in so far as anyone familiar with structuring of financial products knows that they can easily be structured to achieve effective interest rates far higher than the nominal rates stated on the face of the documentation. More importantly, the attempt to regulate interest rates distorts (and destroys) industry structure accentuating a flight to (perceived) safety and making smaller and weaker banks less competitive. Moreover in an environment with 14.6% inflation, a deposit at 15% makes no sense-a sensible depositor will rather put his money in tangible assets that hold value than in monetary assets at a real return of 0.4%.

The international policy analysts Eurasia Group, says our CBN has with this measure cemented “its growing reputation as one of the most erratic central banks in the world”! Ouch!!! The analysts also make the following comments, “Rather than helping to ease the liquidity crisis, the arbitrary imposition of interest rate controls will severely exacerbate it…The profitability of the country’s banking sector will take a structural hit. Nigeria’s Central Bank Governor Chukwuma Soludo (who is tirelessly fighting to be re-appointed to another 5-year term next month) has clearly abandoned all pretences of a basic belief in market-based economic mechanisms…This adjustment process will crowd out the middle-tier and smaller banks…Unless this circular is rescinded soon, Nigeria will soon develop an even more risky unregulated ‘shadow banking system’ where market rates will apply between borrowers and lenders.” I commend these words to our economic and policy managers. A word is enough for the wise!

It has become clear to me that while there are narrow technical reasons for all our current domestic economic challenges-the capital market collapse, financial sector worries, Naira depreciation, rising inflation and rising interest rates, at its foundations what we are dealing with is most importantly a crisis of confidence. That crisis of confidence has aspects that are not within our control-the exogenous impact of the global financial crisis for instance on capital flows and the price of oil. But there are several aspects that are endogenous and we must now begin to deal aggressively with them. There is a lack of confidence in policy direction, governance and leadership. The populace and the markets perceive no sense of urgency in addressing the nation’s economic and policy challenges, and in some cases (such as the unwillingness to implement the Electric Power Sector Reform Act) a case probably of perverse motives. And there is eroded confidence in the transparency and regulation of our capital markets, financial sector and now currency management as well. If we don’t urgently re-instate confidence at all these levels, our crisis may extend beyond the global financial crisis.

Policy and Economic Review

Countries all over the world, developed, developing and under-developed are faced with a downward economic spiral. Those who are not yet officially in recession (meaning a contraction in economic activity) are faced with a slowdown in the rate of growth in their gross domestic product (GDP). Whether recession or slowdown, both result in higher unemployment, corporate and individual bankruptcies and loss of consumer and producer confidence. Policy makers everywhere recognise that deliberate policy and action is required to stem or reverse such a downward spiral otherwise economic activity declines further as more unemployment means lower demand, and then less production, and more bankruptcies etc in a vicious cycle.

That is why President Barack Obama has passed a $787billion stimulus bill (The American Reconstruction and Recovery Act) to invest in public infrastructure and generate jobs and economic activity which would otherwise not be generated by the private sector. China which is not in recession, but whose growth rate has declined from 13% to 6% has enacted their own $586billion infrastructure package based on the same thinking. Governments across Europe are doing the same thing. The question is how will Nigeria act to ensure that the envisaged slowdown in growth from around 7.5 per cent in 2008 to a projection of around 4 per cent in 2009 does not become worse in 2010 if global adverse conditions do not abate?

There is no clear strategy on the table in this regard. Instead the President’s advisers are worried that the 2009 budget as passed by the National Assembly is unsustainable. I disagree! As passed, the 2009 budget contains a deficit of 3.02 percent with the President warning that if oil production declines to an average of 1.6million barrels per day, the deficit will increase to 5.24 per cent. What the president’s advisers did not tell him or Nigerians is the comparable level of deficit in countries across the world all of whom like us adopt a target of 3 per cent maximum deficit as a percentage of GDP. In the US, the percentage is 12 per cent! In other countries the same trend is in play-Britain-7.2% and France-5.5% are some examples according to the Economist. The US budget deficit is exclusive of the stimulus package earlier referred to!

The point is, it doesn’t make sense in a recessionary environment to simply tout extant technical rules about deficits when everyone ought to recognise the dramatic and unique circumstances in which the country finds itself. The other point of course is, what is the percentage of government spending as a percentage of GDP? In all these developed countries, the percentage is rising-US projected to be 39.9% in 2010; while the Eurozone is similarly projected at 47.1% in the same year; In France, Britain and Germany, the figures are 52%, 45% and 44% respectively. In Nigeria, the figure by my calculations and projections is around 12.86% which negates the alarm over government spending. The scare is even less credible considering that while the US for instance is borrowing from outside to finance the deficit, Nigeria has $40 billion in reserves. Like Dr Mrs Ngozi Okonjo-Iweala reminded us, it is not illegal to spend one’s savings!

So the real problem is not spending but quality of spending (what are we spending money on?) and value for money (how much of it gets stolen versus how much gets into the purpose of the appropriation?)! Which means altering the ratio of spending between capital and recurrent expenditure in favour of capital spending; altering recurrent spending from maintaining bureaucracies to funding social investment in education, science and technology, agriculture, and law and order; improving the effectiveness and transparency of the procurement process; and stopping corruption! The regime needs to focus on these priorities.

But meanwhile until we reform procurements and reduce corruption, public sector spending will remain a sub-optimal source of economic stimulus in Nigeria given the reality that much of the money will be embezzled. Indeed public sector spending then becomes economically destabilising as stolen funds are aggressively exported, thus depreciating the Naira; aggressively diverted into real estate thus fuelling property prices; and aggressively deployed into ostentatious consumption thus contributing to erosion of moral values. In the circumstances, we can afford to be innovative and seek private sector stimulus in some targeted sectors which in spite of global recession will yield capital inflows. In my view such three priority sectors for Nigeria should be power, transportation and solid minerals.

I believe Nigeria can mobilise private capital domestically and internationally into all of these sectors in spite of the current economic conditions. These will replace some of the decline in government spending; generate taxes, employment and other economic spin-offs much like telecommunications deregulation did between 2001 and now, and in the particular case of power, contribute to economic efficiency. More importantly in all of these the legal framework for attracting private capital already exists in the form of the Electric Power Sector Reform Act of 2005, the Mines and Minerals Act of 2007 and the ICRC. What remains is for the ministers and regulators in charge of these and the administration in general to get going!

Reflections on Nigerian Banking Part 3

In the last two weeks, I have published reflections on the Nigerian banking industry. The first part focussed on issue of strategy vis-a-vis regulation and counselled against the trend for players in the industry to act in a homogenous manner. Last week we examined issues of future structure of regulation in the industry and approaches to resolve current challenges faced by the industry. In both articles, I was merely re-stating arguments that had been expressed on these pages up to two years ago. In these final reflections, I go back even further to an article written immediately after the conclusion of consolidation early in 2006 titled “Banking Consolidation...and then What?”

The arguments I made in that article (which unfortunately were by and large ignored) have been borne out in three short years, to everyone’s regret. I will do no more than quote from that article which started by reminding all concerned that “…simply consolidating the industry will not automatically put an end to all the problems therein. Like they say, it is not yet Uhuru!” I went on to diagnose the pre-consolidation problems of the industry, “…poor corporate governance and weak institutional capacity, low skill levels, weak processes and standardization, weak management information systems, sub-optimal utilization of technology, amongst others-in addition to low capital which recapitalization and consolidation has addressed.” The point being made was that consolidation addressed only one problem-low capital-which of itself did not remove the others!

Indeed in that article I warned about a particular problem which it turns out consolidation did not address but appears to have made worse, the issue of ethics-“…Crucially the concept of who a good banker is has changed from a trained, thinking, careful person of very high integrity to what in effect has become some thing resembling a clever, aggressive, “sharp” and unscrupulous person. Consolidation will not change that! The industry will itself have to redefine what acceptable ethical standards will apply to its staff and the institutions themselves.” I also noted that the transition from capital base of less than N2billion in most cases to over N25billion did not automatically raise the institutions’ capacity to manage at the new level urging “The banks have to develop the required institutional capacity to manage at their new “mega bank” status-at the level of strategy, processes, people development, corporate governance etc. Higher capital levels do not automatically guarantee those.”

The article also focused on more technical concerns which as an erstwhile insider I was aware of, “At the technical level, the banks will have to deal with credit process, credit culture, credit management and credit restructuring and work-out, the standards regarding all of which have deteriorated rather dramatically within the last fifteen years… The industry’s treasury and liquidity management is characterized by rules of thumb and other unscientific decision-making processes, under-the-table practices, and very poor judgment. While the banks have succeeded in using technology to improve operations and service delivery, it is clear that many processes remain outside the purview of technology and management information systems remain inadequate and subject to substantial manual intervention.”

It is these inadequacies that have led to the anguish and pain many of the banks are currently facing with imprudent lending, for instance to capital market loans, based on rules of thumb and subject to little rigour and analysis. I recall that speaking at a NECA seminar in February 2008 (as it turns out days to the beginning of the capital market collapse in March of that year), I mentioned that I thought the capital market was grossly over-valued and may be due for some correction. The bankers in the room vociferously disputed my position, based on no evidence other than “this market cannot fall!”

Finally I also called attention to improvements required in regulation and regulatory capacity, “At the level of the regulators- CBN, NDIC, and SEC, there is also a vast amount of work to be done! The history of the financial sector in fact does not reveal large capitalization as of itself a very enduring indicator of which financial institutions will do well or vice versa. Neither does capital of itself guarantee the long term health and safety of any financial sector. N25 billion can easily be lost in four or five loan transactions. The more sustainable indicators are the quality of corporate governance, ethical and professional standards, skill levels, risk management and compliance, and the robustness of institutional processes and systems. And of course regulatory capacity!”

Today re-reading that article, even I was shocked at how accurate my analysis has turned out to be. If only I was wrong!

Reflections on Nigerian Banking Part 2

Last week I reminded readers about two articles featured on this column in July/August 2007. The basic argument in those two articles was similar-strategy, unlike regulation is about uniqueness. Regulation on the other hand is about common standards and fair and equal treatment. Since the successful banking industry consolidation of 2004-2005, the banking industry by-and-large abdicated strategic thinking to the regulator, the CBN and the result was largely homogenous behaviour by industry participants, who were now left competing on size, network, branding and execution. The current economic circumstances remind everyone that businesses can only be managed on the basis of distinct strategic intent, competitive profile and values.

This week I want to be more forward looking. What options should the industry and policy makers be examining in the present scenario? First of all we note that the CBN governor has stated a figure-N800billion as representing impaired capital market margin loans. We would for the sake of prudence take that figure as a minimum rather than an actual estimate. We also know however that margin loans do not represent the entirety of impaired assets in the banking sector, especially in the context of an economic slowdown when the propensity for asset quality deterioration in banking is higher. Reports suggest for instance that downstream oil sector lending may also be problematic. I would also examine real estate development loans and unsecured import finance facilities for instance as other categories worth examining.

It is the above considerations that make me support the concept of an “Asset Management Company” or “bad bank” a proposal that was initially part of Soludo’s consolidation agenda but that has now been revived in the wake of margin loan losses. Just like in other financial markets, if a way is not found to free up the banks’ balance sheets, liquidity to the rest of the market will be impaired as inter-bank lending freezes, interest rates continue to rise, and the liquidity crunch will move from the capital to the money market. I however believe deciding on an asset management company is the easy part. The more complex and critical issue is fashioning out the operating modalities and securing legislative backing for the proposal. How will the assets to be taken over be valued? Will they be acquired at the value of the underlying loan or the significantly diminished value of the collateral? What conditions, including sanctions and penalties will attach to availing oneself of the AMC’s “bail out”? How will the regulators ensure transparency and the protection of public interest in this whole process? These are important questions that will either frustrate or discredit the idea.

There is also talk of a UK style “Financial Services Authority” carved out of the CBN and other financial sector regulators to form an industry-wide financial services regulator with remit over the whole rather than sectoral silos as is the present practice. I also support this proposal which I think is actually over due. Indeed in my article of July 25 2007 on FSS 2020, I made the same point, “There are other issues that will have to be addressed as CBN and the banks implement FSS 2020-what will be the future role of the CBN itself-a financial services regulator (like the UK Financial Services Authority-FSA) or an economy manager concerned with price stability (like the Bank of England or US Federal Reserve) or both as it currently is?-the broader question is of course about the structure of legal and regulatory systems”.

I believe a new integrated financial services regulator should be created out of a merger of three CBN departments, banking supervision, bank examination and other financial institutions department (OFID) with the insurance regulator and SEC. I personally will prefer that the pensions regulator be kept out of this structure for now-the pension sector is incipient and immature and there may also be some value in isolating pension assets to build contributor confidence and insulate pension assets (to the extent possible) from the rest of financial assets. But even then I would like new statutory mechanisms to increase coordination between the new “FSA” and the pensions regulator, perhaps including appointing PENCOM Commissioners and its head from that body and creating mandatory consultative structures.

There is also the question of headship of the CBN. What is the profile of persons to be appointed to the CBN Governorship? People will off course point out that the global trend is to appoint academic economists to head central banks. I would however argue that given our circumstances and the pool of available talent, the net should be cast wider to include persons with depth of knowledge and experience of finance and financial markets, banking, business and the economy whether or not such persons obtained a degree in economics. In the US, the profile of the Federal Reserve chair is not just an economics degree or doctorate. He is comfortable in boardrooms, has held senior positions probably in regional reserve systems and is reasonably comfortable (and thus relatively immune from temptations!). There are not many academics in Nigeria who fit that profile.

Reflections on Nigerian Banking

This week I am thinking a lot about the financial services sector. I consider myself somewhat of a stakeholder in that sector and appreciate the need to rein in fear and scaremongering that appears to be growing concerning the state of things in the sector. Unfortunately in the absence of information and transparency, concerns about the financial sector spread and if not assuaged develop into a freezing of the inter-bank system and on the part of investors and depositors a flight to (real or perceived) safety. The proper response is transparency and full disclosure about the condition of individual banks instead of hoarding information which raises fear and may precipitate an unnecessary systemic crisis. But first I am forced to reflect again on some of the things that I have written in this column in the past.

On July 25, 2007 in an article on the so-called FSS 2020 I wrote, “…it does appear that most of the strategic thinking in Nigeria’s financial services is been done not by the operators, but by the regulator while the banks are carrying out homogenous activities dictated by regulator-designed strategies and competing on quantum of capital and execution. Didn’t Michael Porter say that strategy is essentially about uniqueness? Or is the industry passing through a standardization phase in which it is more important strategically to be compatible and compliant rather than differentiated?” The very next week I examined the same questions further in another article titled “Nigerian Banking: Differentiating or Commoditizing” (August 1, 2007)

In that piece I wrote “…since July 6, 2004 when Professor Charles Soludo launched the ambitious banking consolidation programme, banks in Nigeria appear to have been forced to abandon unique strategic positions in favour of measures designed to secure regulatory compliance and survival. The consolidation exercise appears to have largely eroded these and other distinct competitive positions in Nigerian banking. Since July 2004, most Nigerian Banks have done largely the same things-raise capital, merge with or acquire other institutions, change names, logos or colours, build many branches, buy ATMs and build e-commerce capabilities, increase retail market penetration, establish subsidiaries, go back to raise more money and open branches in West Africa and beyond-such that unique competitive positions are more difficult to sustain.

Of course it is simplistic and false to argue that after consolidation, 25 “mega banks” with similar attributes emerged in the industry. The truth is that stronger and weaker institutions remain, but the basis of strength or weakness appears increasingly not to depend on unique or differentiated strategic positions but size-of capital, branch network and balance sheets. If the above analysis is correct, then it suggests a trend towards homogenization (and perhaps attendant commoditization) in Nigerian banking…If differentiated positions are disappearing and banks are adopting homogenous strategies, commoditization (or at least standardization) may develop. This trend may also be re-enforced if over capacity emerges as banks build overlapping branches, duplicate ATM locations, chase the same markets and acquire capital in excess of current requirements. The classic sequence then is for price competition to ensue, margins to drop, and in the specific context of banking, imprudent loans and transactions to be booked. These sequences will be amplified if the market is not growing or growing slower than the rate of capacity accumulation…”

I find it amusing that the Central Bank which has de facto assumed responsibility for the strategies implemented by banks is now turning around in the face of difficult times to divert the blame to the banks. It is curious for instance that the bank is blaming deposit money banks for over-publicity, a trend of which the regulator is arguably guiltier. But the more important point the entire industry will have to internalize is the fact that there is a difference between regulation and strategy. Regulation is based on industry-wide standards and common principles, but the objective of strategy is, or should be uniqueness which means each institution must craft its own strategy based on institutional intent, values and peculiarities.

Political Scenarios

Where is our politics going? As President Umaru Yar’adua approaches the mid-point of his four-year term, this question is not irrelevant! Why is Abubakar Atiku engineering reconciliation with his erstwhile boss and latter-day foe, Olusegun Obasanjo? Why is Muhammadu Buhari seeking a more trustworthy base for his political adventures or trying to seize the reins of the present one which has proven to be unreliable under its present leadership? Why is there a silent repositioning and re-alignment in Yoruba politics? Why are the Governors organising themselves into a potent and powerful political pressure group? Everyone can pretend not to notice, but clearly there is an elephant in the room! The jostling for 2011 has begun!!!

As unlikely as it may appear, the first assumption must be that the President will be (or will attempt to be) a candidate in 2011. A sitting president is always a formidable opponent in an election, especially in a political system that is dependent on patronage and in which all prosperity flows from the government. And in a presidential system in which the president basically controls the ruling party, which controls an overwhelming majority of state governments and seats in the federal legislature. But several factors will militate against the President’s attempt to seek a second term, and significant constituencies-locally and perhaps internationally as well, may be inclined to discourage him from pursuing that course of action. On the other hand, current beneficiaries of the power vacuum in Abuja will insist that he ignores such voices. It remains to be seen how fate and destiny will play out!

Of course you can expect Atiku Abubakar to be a candidate as well, either by challenging Yar’adua for the PDP ticket, by persuading him against running or by running on the platform of another party which may or may not be the AC. He will remain a formidable candidate. Many in the system are still sympathetic to him. If his negotiations with Obasanjo and others in the PDP are successful he may return to the PDP, but he may learn one or two lessons from others in the past who thought they had a deal with Obasanjo! But then it may be in the mutual interest of both to cooperate and PDP power blocks like James Ibori, Alamieyesegha and other politicians of the 1999 to 2007 era may swing to his side. Don’t write off Atiku.

Buhari will of course run. His preference will remain seizing the ANPP machinery, but if that fails, he can always concoct an alternative party platform. He remains the most popular Hausa/Fulani politician and remains favoured in the religious and traditional constituencies up north as well as amongst the masses who view him as pious and righteous, in contrast to the other suspects. If Yar’adua is not a candidate, Buhari can win, and even if he is, Buhari will still be a threat. But the average Nigerian politician is afraid of entrusting power to him, and Southerners and Christians will still be uncomfortable with a Buhari presidency, especially as crisis in Jos and other places revive inter-religious suspicion.

By 2011, several governors will have completed their two terms-Bukola Saraki of Kwara, Danjuma Goje of Gombe, Modu Sherrif of Borno, Ibrahim Shekari of Kano and Idris of Kogi. As has become the pattern, many of these gentlemen will seek to remain relevant by becoming Senators, Ministers or party leaders. Expect some of them to challenge for the presidency. And some may actually be formidable, Buki Saraki (and perhaps Goje) being an obvious one. Down South, Gbenga Daniel and Olagunsoye Oyinlola (all things being equal) will also be completing their second terms and will also be re-positioning. Daniel may offer himself as a candidate for Vice-Presidency and Oyinlola will not offer himself but may be offered. The real contest in Yoruba land will however be between Bola Tinubu and Obasanjo.

What will happen to the political parties? I have always believed the real problem of our democracy is not the Constitution, but the weak political party system. My hope has always been for a strong two party system, one “a little to the left and the other a little to the right”. Each of the two should transcend ethnic and religious boundaries and both ideally should be internally consistent with broadly compatible membership. Can this emerge? I hope so, but I do not know. The PDP always threatens to splinter, but the allure of money and power is a stronger glue. If Atiku goes back to the PDP with the core of the PDM, the AC will become fully Tinubu’s show and will attempt to provide that “left-of-centre” alternative to the PDP. And you can never underrate Bola Tinubu.

Ideally the AC-minus-Atiku would try to attract Segun Mimiko of Labour (who may yet be governor of Ondo State!), Peter Obi of APGA and others across the country. If the PDP splits, it should try to gain Governors Jang of Plateau, Sule Lamido of Jigawa and other progressives presently in the PDP. But then as already mentioned, the death of the PDP has always been greatly exaggerated!

Are we all Socialists now?

The current edition of Newsweek magazine declares “We are all Socialists Now”. Coming soon after Time Magazine’s depiction of Karl Marx on its cover in an article entitled, “Rethinking Marx”, you might be forgiven for believing that socialism has finally triumphed over the notion of free enterprise. But that would be if you did not go beyond the cover of both magazines! John King on CNN’s “State of the Union” was the one who alerted me on Sunday night to the Newsweek story. Given its bearing on my article which was already a work-in-progress, I delayed completion of the column to see the on-line edition of the magazine and inverted the story’s title for this article.

The Newsweek story does not expect America or indeed Europe to adopt the socialist model as seen in China (before Deng Xiaoping), Leninist or Stalinist USSR or Cuba. Instead the core argument was that America at the end of the process unleashed by the current financial and economic crisis would resemble Europe rather than the extreme free market capitalism seen under Reagan and George W Bush. Which is not exactly the same as Marxism. It is true of course that one notion of capitalism has been discredited by the current crisis. The extreme right wing view of a free market without government, without regulation and without taxes advocated by Reagan, theorised by the so-called Chicago School of Economists, and implemented for the last eight years under Bush has failed, and deservedly so.

This view was however not the mainstream view of economics. Most economists and market analysts accept that sometimes markets fail, and in such situations, governmental action is required. They recognise that there are areas of societal development that markets may not address at specific points in time and which government and other actors need to fill the space-education, health, disease eradication, and many aspects of infrastructure and public goods for instance may have to be provided by government or else no one will. Policing and public safety as well as national defence and security may not be fully amenable to the market mechanism. And the current financial crisis makes it clear that while the profit motive is useful in stimulating innovation, unbridled search for profits often leads to greed and may undermine the markets hence the need for regulation.

The problem as Bill Clinton pointed out during the recent campaigns is that the Reaganite “trickle down” economics ideologues (lower taxes for the rich and prosperity will trickle down to the poor), did not have the opportunity of fully implementing their notions due to democratic control of congress, until under George W when Republicans controlled the White House and both Houses of Congress to disastrous results as we have now seen. Those policies expanded the fiscal deficit, increased the national debt and left the weakly-regulated financial sector and people like Bernard Madoff free to exploit the gullible public. It is a fitting irony that it is a conservative Republican who has now being forced to nationalise banks to preserve a more sensible definition of capitalism.

The Time Magazine story “Rethinking Marx” reminds us that “Marx’s utopian predictions about revolution and the triumph of socialism were dead wrong; indeed many of the policies carried out in his name in the 20th Century brought misery to millions in countries ranging from Russia to China, and large chunks of Africa.” Of course, the ongoing crisis confirms that just as any human system, capitalism also has its limits. Time concedes that Marx was right in his diagnosis of these limits-capitalism left on its own will expand inequality between the rich and the poor; it treats labour like a commodity to be purchased, but work should bring fulfilment; potentially unrestrained capitalism will squeeze the middle class out of existence, leading ironically to the collapse of capitalism since the middle class is required to purchase goods and services produced by capitalist firms; and in capitalist systems, profits take a larger and larger share of the economy at the expense of wages again accentuating the gap between the rich and poor and marginalising the middle. America has seen all of these dynamics play out and that is why America as Newsweek predicts will continue to move closer to the European model which uses taxes to redress inequality and provides welfare and benefits for the poor.

The lesson here is that reason and human experience is more useful than pure ideology in shaping society. That is the lesson China also learnt from the left! When Deng Xiaoping became Chinese leader in 1978 he realised that socialism was destroying and impoverishing his people and advocated to his communist colleagues the injection of some capitalism into the Chinese economy urging his party apparatchiks, “It cannot harm us, it cannot harm us”. He defined a new economic system which he called, the “Socialist Market Economy” which accepted private property, markets and profits-the central elements of the capitalist system, but retained the communist political structure. The point is even Deng Xiaoping and post-Deng China were pragmatic in re-interpreting Communist doctrine to redress the obvious limitations of socialism.

What do I believe? I am a “socialist” in those areas that concern the poor-public education, health, rural development, public transportation, unemployment and social security, subject to social policies being sustainable. However the economy functions best in line with free enterprise principles and so I am convinced most economic sector decisions are best based on market principles. But government retains a role-to ensure markets are fair, competitive and well-regulated, to protect labour and other less-powerful groups, and to shape investment climates and provide macro-economic stability and security.

Nigerians can be led!

The debate about whether Nigeria’s problem is one of the leadership or followership recurs every now and then. I have heard many in and out of government comment on the amount of pressure Nigerians are subjected to once they assume a public position, and even immediately they hint at an interest in contesting for public office. The implication of this point of view is that Nigeria’s problem is at least partly one of followership. And this point is not without some basis. I have often marvelled at the way Nigerians react to the appointment or election of people into so-called “juicy” positions. Congratulatory adverts appear in the newspapers-from friends, colleagues, old classmates, business partners, banks and other “stakeholders”. The fellow is immediately offered a chieftaincy title by his traditional ruler, elevated to a front row seat in his church and becomes a “Chief Launcher” at every fund raiser.

His closest friends no longer call him by his name. He is now “Honourable Minister”, “Honourable Commissioner”, “My DG”, “My ED” etc. In short we give the poor guy little chance of retaining a proper perspective founded on service and sacrifice. Protocol officers begin to restrain the fellow’s very humanity and before long the man is virtually compelled to act like a colonial district officer in the midst of some illiterate or hostile natives! Don’t mistake all the fawning and respect for genuine love, loyalty or admiration! It is all self-serving sycophancy designed to manipulate the office holder into sending a share of the “national cake” in their direction. And then people begin to offer the guy earnest advice-“this is your chance”, “once you are out of office, no one will remember you oh!”, “take care of tomorrow” etc until the fellow is completely compromised.

Our people are also implicated in some of the worst aspects of the Nigerian electoral system. Those who collect bribes from office seekers and say “na manifesto we go chop?”; those who dismiss progressive candidates as unelectable and vote instead for corrupt generals and party “chieftains” in a self-fulfilling prophesy that good people can never win elections in Nigeria. And indeed didn’t Chief Obafemi Awolowo and Alhaji Aminu Kano offer themselves to Nigerians as leaders over and over again? Didn’t Gani Fawehinmi’s National Conscience Party contest elections in Nigeria? How many Nigerians voted for that party? Wasn’t Femi Falana a candidate when Ekiti people elected Ayo Fayose? Didn’t Osun people vote out Bisi Akande after a corruption-free first term?

But in spite of these arguments, I have always preferred the alternative viewpoint. Leaders are people who are able to lift the people above their present level-in terms of civic citizenship, social consciousness, ethical, political and moral values and otherwise. All South Africans do not have the spirit of forgiveness and statesmanship that Nelson Mandela exhibited. All Americans do not have the intellect and organisational skills that Barack Obama displayed in his march to the White House. Mahatma Ghandi’s message of peaceful resistance was not the behaviour exhibited on the streets of India. Lee Kwuan Yew had to force those principles that eventually lifted Singapore “from third world to first” down the throats of some of his countrymen and women.

The point is leaders, real leaders that is, rise above their environment and lift up their people. They create a vision that is higher and bigger than the present, they communicate the vision, they influence people and secure support, they elevate motives (including their own), and they lead people towards realisation and execution of the vision. Often they change first themselves, and then their societies. They do not descend to the level of their streets! Not Abraham Lincoln, Obafemi Awolowo, Murtala Muhammed, Margaret Thatcher, Martin Luther King, Deng Xiaoping or any great leader for that matter. Any political leader who blames followers or even advisers for his failings concedes implicitly that leadership is not his or her calling!

If I had any doubt that Nigerians are ready and willing to be led in a positive direction, those doubts were dispelled on Friday night (January 30) at the Silverbird Man of the Year event at Eko Hotel where Comrade Adams Oshiomole was honoured. Two incidents-both similar in their significance defined this conviction. Governor Babatunde Raji Fashola of Lagos was the Special Guest of Honour. When Fashola was introduced, the hall erupted in spontaneous applause and then a standing ovation which persisted for several minutes. It was unplanned, the MC did not have to remind anyone to “give his Excellency a round of applause” as we are always urged to do; it was completely spontaneous and completely unanimous! And this for a Governor who has ruled for less than two years.

It was the same with Adams Oshiomole after his acceptance speech. As he articulated why he has always fought against social injustice and oppression, recounted his experiences as a factory hand who was sacked merely because he didn’t look physically strong, explained his occasional reflections on all the companies and governments who have been on the receiving end of his labour activism and agitation due to his compulsive inability to ignore oppressive use of power, pledged to demystify governance and remain on the side of the common people, the hall erupted in another standing ovation. These two gentlemen reinforced my conviction that when Nigerians see good leadership, they will follow. Their hopes may have been dashed over and over again, but Nigerians are still willing when the right leader emerges to rise and build the nation of their dreams.

Business in 2009

Last week we examined the policy implications of the current constrained economic environment. It is clear that the only way to avert the type of economic pressures Nigeria was subjected to in the 1980s and early to mid-90s is to change the policy direction (or lack of it) that the current regime has adopted since May 2007. It requires a return to an economic model that leverages and indeed actively seeks private capital from foreign and domestic sources; a clearly articulated development strategy that addresses the debilitating power and infrastructure situation; an assault on corruption and mismanagement of the budgetary and procurement processes that denies the Nigerian economy value-for-money even for the limited budget dollars that we appropriate; and it requires exceptional leadership at the Presidency and in the critical ministries, departments and agencies that impact on the Nigerian economy and on the conditions of our people.

There appear to be tentative signals that the Presidency is finally coming to an understanding of these requirements, based on the evidence from some of the recent actions of government, but then some consistency of action and “follow through” is required. Observing the volatility of the foreign currency markets in just two weeks of 2009, I was uncannily reminded of the early days of my career as a banking executive when perhaps seventy-five percent of management energies were directed towards procuring the forex needs of our clients. Those days seemed to have ended with the return of high oil prices, the build-up of foreign reserves, the 2005 Paris Club debt write-off, resumed FDI and portfolio investment, and the successful banking consolidation exercise. Today, we are reminded of the dangers of over-celebration. As I have warned long before in this column, our economic advantages though important were significantly “wind-assisted” by high oil prices and a bullish international economic environment.

Early in December while making presentations on the economic outlook in 2009 in several boardrooms and management meetings, I projected some Naira devaluation, at first to around N125 but before the middle of December, it was clear to me that we were probably going to be facing a more severe devaluation and we revised our average exchange rate for 2009 to N135-N140 to $. By and large, we stand by that projection, in spite of the volatility we have just witnessed. I would argue that the scenario in January was merely exacerbated by speculation and panic induced by the policy vacuum from the Central Bank. The financial markets hate lack of information! But one also understands Charles Soludo’s increasing hesitancy in leading policy debates. He burnt his hands in the currency denomination and dollar payment of state and local government revenues quagmire and perhaps will like to live his last days at the CBN in peace. With the Central Bank taking a clear policy position, the exchange rates will be moderated we believe to our projected range.

Beyond the exchange rate, business is concerned with the state of infrastructure-particularly power and transportation; the state of the financial sector, the availability of credit and interest rates; inflation and money supply; the stock market; government’s fiscal stance especially given the role of government in our economy; and the level of economic activity and GDP growth. What is the outlook in 2009 for all these variables? Nothing will happen to drastically change the conditions of our power and transportation infrastructure in 2009, but there will be some incremental improvements as the year unfolds. I believe there may emerge a better policy posture in power after an unduly long learning curve, but we now have a minister for power who should understand what is required. We also have the emerging outlines of a concessioning strategy for roads and an agency, the Infrastructure Concessioning and Regulatory Commission (ICRC) that can lead action in that regard.

I hold the view that the financial sector will be tighter in 2009. Banks will be dealing with several challenges-declining earnings, asset quality erosion and its accounting implications, bloated payroll (and possibly headcount), declining international lines of credit due to the global financial crisis, increasing operating expenses, paucity of attractive transactions, lower government revenue and a more difficult macroeconomic environment. It will be the first time since perhaps 1998/1999 that the sector will be dealing with such adverse circumstances and I am not convinced there is enough depth of skills and competences in the industry to handle these challenges. The implications will be tighter credit and higher interest rates! And for those hoping for a quick stock market turnaround, we have seen no reason to expect one before the latter part of 2009.

By and large, we support the government’s oil price budget benchmark of $45 per barrel, even though my firm believed a more prudent benchmark of $40 was more realistic. On the other hand, we recognise that some deficits may be tolerable in this recessionary environment to prevent a complete economic meltdown. There will be mixed inflationary pressures-Naira devaluation increasing input costs for producers and suppliers of imported raw materials and end-products but constrained government revenue and financial sector credit acting in the opposite direction. The final inflation outcomes will reflect the relative force of these countervailing pressures. We have predicted foreign reserves will be down to $50 billion or less by year end. That projection is now beginning to look optimistic with reserves already at $53billion in January!

Finally in December we advised our clients to expect GDP growth in the range of 4-6 percent. We stand by that expectation. The President’s budgetary projection of double digit growth may simply have been wishful thinking. With both oil price and volumes down, with supply and cost of credit constrained, with the manufacturing sector hobbled by power, we have only few sectors-agriculture, communication, trade and services to look up to. Those are unlikely to produce aggregate growth beyond 6 per cent.